Cobalt Market 2022 Year-End Review

What happened in the cobalt market in 2022?

Cobalt market in Q1: Strong demand supports prices

In Q1, cobalt's performance was mostly as expected, with tight conditions persisting and strong demand continuing from the battery market, Harry Fisher, then of CRU Group, told the Investing News Network (INN).

“Russia’s invasion of Ukraine was of course the key shock which has tightened the screws further on the market,” he said. Russia is the world’s second largest producer of cobalt, with 2021 output of 7,600 metric tons (MT), as per the US Geological Survey.

After averaging US$24 per pound in 2021, European metal prices started the year at around US$32, but rose on the back of constrained conditions and uncertainty around the war in Ukraine. By the end of March, European prices were near US$40.

“We expect that market tightness will continue while global supply chains remain constrained and keep intermediate payables high,” Fisher said. While conditions were seen easing in H2, the impact of the Russia-Ukraine war called that into question.

EV forecasts at the start of the year indicated that the strong sales trend seen in 2021 would not slow down in 2022. That’s why many experts predicted that cobalt demand would continue to enjoy healthy levels for the year.

“We now expect cobalt demand to be even stronger as EV sales continue to accelerate,” Fisher said. CRU’s forecast at the time was for 3.6 million additional new energy vehicle (NEV) sales year-on-year in 2022, with global penetration reaching 12 percent.

Looking over to cobalt supply, CRU was forecasting around 40,000 MT of mined supply growth in 2022. Last year, cobalt mine output rose 12 percent year-on-year to 160,000 MT after falling in 2020. The Democratic Republic of Congo was the top producer.

“Although more than 60 percent of this is from the Democratic Republic of Congo, this remains at risk from the supply chain constraints already mentioned,” Fisher said.

Cobalt market in Q2: Price rally takes a pause

Prices for the commodity stabilized in the first three months of 2022, but took a breather in the second quarter.

Speaking with INN about the price pullback seen in the second quarter, Cameron Hughes of Benchmark Mineral Intelligence said at the time that cobalt sulfate prices initially led the retreat. He pointed to the impact of China's COVID-19 restrictions, which were felt sharply across the country's domestic battery supply chain in early April.

“The downturn was later felt across the entire cobalt complex as metal prices and hydroxide payables recorded similar declines in May, with all three grades continuing to fall throughout the remainder of the quarter,” he said.

Once the correction began, it became clear that prices had substantial downside potential. That's because Chinese prices had been trading at much lower levels than the international market in recent months, Hughes said at the end of Q2.

Demand from the EV sector was stronger than many had expected in 2021, but Chinese lockdowns paired with macroeconomic factors impacted the space in the second quarter.

Even so, NEV sales rebounded quickly in China, rising 50 percent month-on-month in May and 33 percent month-on-month in June. In fact, June sales hit a new monthly record of 596,000 units, as per CRU data.

In Q2, CRU revised its forecasts for mine supply slightly, predicting a rise of over 42,000 MT, up 26 percent year-on-year. “This will mean that the market should certainly be more balanced than in 2021, when a significant deficit developed,” Fisher said.

Cobalt market in Q3: Demand for electronics takes hit

After pulling back in the second quarter, cobalt prices began to stabilize in Q3.

“Spot demand for cobalt was tepid throughout (the third quarter), despite strong Chinese EV and battery production, given large inventories of raw material accumulated throughout 2022,” Hughes said.

“The majority of demand from cell manufacturing was absorbed by long-term contracts, cobalt contained in mixed hydroxide precipitate from Indonesia and cobalt recycling.”

Prices found support in late August due to perceived tightness in the US superalloy market and robust alloy grade demand, according to Benchmark Mineral Intelligence data.

“This provided upward momentum for metal prices, which subsequently supported sulfate and hydroxide prices,” Hughes said at the end of Q3. “As this tightness subsided in September, prices stabilized throughout the month.”

In Q3, macroeconomic headwinds continued to hit the cobalt sector, limiting demand from several industries.

The most significant impact has been on cobalt demand from consumer electronics, which is down almost 10 percent year-on-year, according to Benchmark Mineral Intelligence.

“There has also been limited demand from energy-intensive cobalt end markets, such as the ceramics industry, given increasing energy prices,” Hughes said. “Although sectors like ceramics are relatively small industries, this demonstrates a wider trend of energy-intensive processes having to be cut back.”

Looking at supply, Project Blue’s Jack Bedder pointed out that cobalt material was flowing out of Africa reasonably easily at the time. “But any changes there could add tightness (to the market),” he added.

Cobalt market Q4: EV demand to remain strong

The EV sector remains a top demand driver for cobalt. The industry has grown significantly in the past two years, driven primarily by China, but with regions such as Europe also showing strength.

Looking at what might be ahead in 2023, Iola Hughes of Rho Motion told INN the upside is strong for the EV market, highlighting China's role in the sector. Speaking about the different cathode chemistries leading the industry, Hughes said North America at the moment is dominated by nickel-cobalt-aluminum.

“The remainder of the market is being made up by nickel-cobalt-manganese, with a little bit of lithium-iron-phosphate (LFP) coming through from imports of China,” she said. “In China, the LFP story has really been stepping up this year — we're seeing close to 40 percent of that market being LFP cathodes.”

When looking at what might be ahead for cobalt, total cobalt supply is estimated to be 206,000 MT in 2023, an increase of 26,000 MT from 180,000 MT in 2022, according to Fastmarkets’ research team. Meanwhile, demand is forecast to increase by 17,000 MT to 194,000 MT in 2023. Despite this year-on-year increase, the market is expected to be in a supply surplus of 12,000 MT in 2023.

“We saw cobalt prices correct, (as) the cobalt market isn't in deficit at the moment, and there's adequate supply for demand,” Caspar Rawles of Benchmark Mineral Intelligence told INN. “Part of that is down to the fact that there's been a bigger uptake of LFP in China than was originally anticipated … and importantly, this year in particular what we've seen is sort of lackluster demand from the consumer electronics industries, smartphones and laptops.”

But even as the share of LFP might continue to grow, cobalt demand from the EV sector is expected to remain high.

“Despite the prevailing transition to lower cobalt cathode chemistries and the growing share of non-cobalt chemistries, the cobalt bearing (nickel-cobalt-manganese) chemistry will remain the dominant chemistry in the foreseeable future," said Andries Gerbens, a physical trader at Darton Commodities. "Furthermore, the sheer absolute growth in EV sales will mean that EV-related cobalt demand will continue to accelerate in the years to come."